FX Daily: Fed Minutes and Data Releases Awaited as Dollar Bears Seek Evidence

FX Daily: Dollar bears still need data evidence

US markets reopen today and FX volatility should pick up again. The minutes from the June FOMC meeting will be in focus but we doubt markets will find much evidence to turn any less hawkish on Fed tightening, which will leave data releases the task of driving any substantial dollar move for now. Expect the NBR's hawkish tone to continue.

 

USD: Back from holiday

Thinner volumes at the start of this week have coincided with some moderate support for commodity currencies in the G10 space. US markets re-open today and we expect some pick up in FX volatility, with both Fed communication and data coming into focus.

The minutes from the June FOMC meeting are the main highlight today. First of all, the minutes will shed some light on the compromise between keeping rates on hold but strongly signalling more hikes ahead. From a market perspective, it will be key to gauge where most of the committee sees core inflation dynamics going and the scope for further tightening. Markets will also be sensitive to any details about members’ positions on rate cuts. We heard some strong pushback by Fed Chair Jerome Powell in the post-meeting press conference against cuts in 2024, but the dot plot projections show easing starting sometime next year.

Overall, the dot plot projections and the post-meeting Fed communication suggest that markets may not find many hints to recalibrate their tightening expectations lower today. If anything, the trigger for such a dynamic would be weak US data. Today, the calendar is not particularly heavy in the US: factory orders for May and the final print of durable goods orders. Tomorrow’s ISM services and ADP employment figures are a bigger risk event for the dollar.